Obama Proposes Payroll Tax Holiday As Part Of Bush Tax Cuts Deal

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Written By:
Rob Port

Dec 6, 2010
7:01pm

It’s not the first time the President proposed the idea, nor has the idea been one exclusive to Demcorats, but as economic stimulus it’s a silly idea. Either cut taxes permanently or not at all.

WASHINGTON—Aides to President Barack Obama are proposing a one-year reduction in the payroll tax as part of negotiations with Congress on a broader package to stave off income-tax increases due to take effect next year.

Under the White House plan, the Social Security tax paid by workers would drop temporarily by 2 percentage points, to 4.2% from 6.2%, a person familiar with the proposal said. For a worker earning $40,000, the tax savings would be $800.

The proposal has not won the approval of congressional Democrats or Republicans. Its emergence in the broader tax negotiations is a sign that the White House is trying to break the logjam on those talks before the end of the year, when tax cuts signed into law by former President George W. Bush are due to expire.

White House officials proposed the cut as a way to stimulate the economy, said the person familiar with the talks. The proposal would take the place of an earlier White House push to extend Mr. Obama’s signature Making Work Pay tax cut, which reduced income taxes for middle-income individuals by $400 a year.

If you want to stimulate jobs growth you have to create demand for workers. Businesses don’t hire workers because they get a payroll tax break. They hire workers because they need workers. And even if an employment position was so marginal that a payroll tax reduction like this would make it practical, the job would only last as long as the tax cut did.

It would mean a bit more money in the economy, and a bit less to the government, which is certainly a positive. But again, we’re only talking about a year.

We need long term, meaningful growth. Not temporary tax relief that will result in a temporary and marginal amount of economic stimulus.

What’s actually kind of depressing is that, in this context, the Obama administration concedes that tax cuts (even for “the rich”) result in economic stimulus. So why they can’t he admit that raising taxes by letting the Bush tax cuts expire would be a detriment to the economy?

He cannot have it both ways.